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JPMorgan Now Expect 150BP Hike From BanRep Next Week


While messages to improve confidence, particularly regarding energy transition and fiscal spending, are a necessary condition for stability in the medium term, markets need tangible measures to stabilize the short-term as well.

  • The EM market stabilization playbook here includes a well-designed combination of large rate hikes, a well-calibrated FX intervention, alongside complementary measures (such as issuance of multi-lateral guaranteed external bonds).
  • Overall, whichever path policymakers decide to pursue, JPMorgan think rates will need to be higher in an equilibrium, either via additional risk-premium or an actually higher policy rate.
  • As a result, JPM think there is more asymmetry in paying rates rather than in shorting the FX at current levels (which could have more two-way risk in an intervention scenario), and they prefer to keep their 1y1y IBR payers (last: 12.83%, entry level: 11.30%, review point: 10.70%, new target: 13.30%).
  • On the side of Economic Research, JPM now expect a 150bp hike in the October 28 BanRep meeting (up from 100bp) to 11.5%; another 100bp (at least) would follow, assuming a stabilization scenario.

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